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These 5 Retailers Are Thriving, While These 5 May Not Make It

Author: John Ballard | September 14, 2018

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The retail apocalypse has separated the weak from the strong

While
e-commerce has certainly been a death knell for some retailers, others have
managed to thrive. Some stores have a powerful brand that keeps customers loyal.
Others have found a specific niche that keeps it insulated from cutthroat competitors
like Amazon (NASDAQ:AMZN) and Walmart (NYSE:WMT). A common problem
for those stores that are struggling is they are simply offering a product or
service that consumers can buy more conveniently and cheaply somewhere else.

Keep
reading for a rundown of five retailers that are still expanding, and five
retailers that are closing stores in order to pay the bills.

1. Five Below

While
Amazon has put a lot of pressure on full-price retailers in recent years, Five
Below (NASDAQ:FIVE) has carved itself a nice niche selling an assortment of
merchandise from $1 to $5 primarily to teens and pre-teens. The company actively
monitors trends with its target customer and keeps a fresh assortment of merchandise
that is in-trend with the fickle tastes of teenagers. Products range from sports,
apparel, games, art supplies, and a host of other categories.

Growth
has been phenomenal. Over the last five years, sales have more than doubled,
while profits have tripled. The company has 658 stores
open in 32 states with plans to eventually reach more than 2,500 nationwide.

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2. Tiffany

The
iconic jewelry store has had its ups and downs over its 180-year history, but the power of the iconic
Tiffany & Co. (NYSE:TIF) brand always seems to come through for shareholders
in the end. After posting a decline in comparable store sales of 5% in 2016 and
2017 when many retailers were struggling with weak traffic trends, Tiffany has had a fantastic
2018 so far. In the first half of the year, comparable store sales growth was 9%. That improved performance
has sent the share price up 20% year to date.

What's
most encouraging is that growth has been broad-based across the world where
Tiffany has a physical presence (currently 28 countries). Nonetheless, management
wasn't satisfied with its performance in previous years and plans to make investments
in several areas, including marketing, digital, merchandising, and store
presentation in order to achieve sustainable growth in sales, margins, and
earnings over the long-term.

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3. lululemon athletica

lululemon athletica (NASDAQ:LULU) has been on
fire lately. Investments in previous years to improve the design process of
merchandise, streamline the supply chain, and freshen up the website have paid
off beautifully. The last quarter saw
comparable same store sales explode 20% driven primarily by robust online sales. Strong revenue and earnings
growth have sent shares through the roof, up 153% over the last year.

Long
term, the future looks bright. Lululemon's Asia business is particularly
looking strong, where comparable store sales have consistently been hovering
around 50% in recent
quarters. Management is also focused
on growing its men's category into a $1 billion business by 2020. By then, they
expect the company to reach or exceed $4 billion in revenue, a 37% increase
over the trailing 12-month total of $2.9 billion.

4. Best Buy

I
know it's hard to believe, but Best Buy (NYSE:BBY) is thriving under the
shadow of Amazon. In fact, the online juggernaut is partnered with the tech
retail specialist to sell Amazon's new line of Fire TV Edition smart TVs at
Best Buy stores in the U.S. and Canada. What this shows is that
even with the growing adoption of online shopping (where Amazon is certainly
the champ in every regard), people still highly value the in-store experience,
especially when they are plopping down big bucks on fancy electronics.

After
a rough few years, in which Best Buy may have been a candidate for a retailer
that may not make
it, comparable store sales have
greatly improved, reaching 6.2% in the second quarter. For that, management
credited strength across home theater, computing, appliances, gaming, mobile
phones, and smart-home devices.

Management
has set a 2020 goal of growing adjusted earnings per share 12% to 13% annually. A key part of the growth
strategy is shifting more of its focus to installation and other services, in
which many customers want to use smart-home devices but get frustrated in
setting it up properly. Given that the smart-home
device market is expected to grow from $31 billion in 2017 to $41 billion by 2020, Best
Buy's best days may still be ahead.

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Source: Burlington Stores

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5. Burlington Stores

Burlington Stores (NYSE:BURL) is an off-price
retailer that has delivered impressive performance through the retail-recession
in recent years. The company's focus on offering quality merchandise at
"everyday low prices" has delivered positive comparable same store
sales growth every year over the last five years.

Most
impressive has been the company's bottom line performance, where earnings per
share have improved from a net loss in fiscal 2013 to a profit of $5.48 in
fiscal 2017. Investors can give credit
to management's expertise in optimizing markdowns and keeping a tight lid on
operating expenses
for the improvement in profitability. Burlington continued its
run of impressive earnings performance in the second quarter with year over
year growth of 56%.

Burlington
had 651 stores open at the end of the last quarter, and management believes
they can reach 1,000 store openings over the long term.

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6. GameStop

The
digital trends that completely changed how consumers watch movies, listen to
music, and read books is now sweeping across the video game industry, and
that's not good news for one of the largest standalone video game retailers. GameStop
(NYSE:GME) has been gradually shuttering stores in recent years as fewer gamers
are visiting physical stores to buy games and instead are choosing to purchase
games digitally over their game console.

Management
has done its best to wave off the digital stampede by widening its focus to
selling gaming collectibles and also opening stores that sell mobile phones and
other technology products. But it's uncertain whether
these efforts will be enough to outgrow the $7.3 billion (or nearly 80% of
total revenue) that GameStop generated last year from selling video games and
game hardware.

In
the last quarter, total sales declined 5.5% with comparable same store sales
down 5.3%. The company's stock has
lost 73% of its value of the last five years. With analysts expecting
sales and earnings to decline this year and next, it's looking more and more
like GameStop's days are numbered.

7. Ascena

AscenaRetail Group (NASDAQ:ASNA) is a holding
company of various apparel retail stores, including Ann Taylor, LOFT, Lou &
Grey, and dressbarn, among others. Many of its stores are
located in malls or strip shopping centers that have been hit hard by the
shift to online shopping in recent years. The company's stock has
lost 72% of its value over the last five years as declining traffic at stores
has wiped out Ascena's ability to make a profit.

In
the last quarter, the company had a bright spot in its Justice kids fashion
brand, which posted positive comparable same store sales growth of 10%. But that wasn't enough to
carry the other brands, with Ascena posting a 3% decline in total comparable
store sales.

Last
year, the company transitioned all of its stores to a new online shopping experience.
But with the company's debt
burden of $1.456 billion and 4,663 retail locations contributing to losses on
the bottom line, it may be too late for a turnaround.

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Source: Sears Holdings

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8. Sears Holdings

The
once iconic retail store appears to be standing on its last legs. Sears
Holdings (NASDAQ:SHLD) has lost 96% of its stock market value over the last
five years, as store closings and real estate sales haven't been enough to turn
the company's fortunes around.

Sears
posted a comparable same store sales decline of 11.9% in the first quarter. Amazon is not the only
competitor to blame. Sears's losses are coming at the expense of other big box
retailers as well. In the most recent quarter, competing retailers Best Buy
and Lowe's (NYSE:LOW) credited strength in appliances (one of Sears' key
product categories) for growth in their respective comparable store sales.

What's
more, as Sears shrinks, debt is mounting. Without generating a profit,
there's only one way to get its debt of $3 billion-plus under control: sell
more real estate until there's nothing left to sell.

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9. J.C. Penney

While
J.C. Penney (NYSE:JCP) is not in as dire straits as Sears Holdings, it's
certainly not showing the vibrant recovery that other retailers have shown this
year. In the second quarter, J.C. Penney posted 0.3% growth in comparable same
store sales, which is only slightly better than what the department store
posted during the retail recession of the last few years. More concerning is that the
department store chain is still not showing a profit and has $3.96 billion of
debt to deal with.

The
company has tried different things to invite customers to its stores in recent
years, such as in-store category-focused shops, including Baby Shops, Toy
Shops, and shops focused on sports. It's similar to the same idea
that failed under former CEO Ron Johnson, who, in 2012, attempted to improve
the company's fortunes by creating a series of specialty brand shops inside J.C. Penney stores which never resonated with customers.

Most
discouraging has been the turnover among top brass in recent years. The latest blow was CEO
Marvin Ellison resigning in May 2018 to "pursue another opportunity"
at Lowe's. With the stock down 79%
since the start of 2017, it seems investors have finally thrown in the towel.

10. Barnes & Noble

Online
shopping and ebooks are giving book buyers more convenience and cheaper prices,
and that is taking a heavy toll on Barnes & Noble (NYSE:BKS). Since
fiscal 2010, the bookstore chain has gradually closed underperforming stores,
but comparable same store sales have still been negative for most of that time. B&N's stock has lost
67% of its value over the last three years.

The
company's last hope was its Nook e-reader which has completely fallen by the wayside. That showed promise for a while, which even attracted a $300 million
investment from Microsoft
(NASDAQ:MSFT) in 2012. However, the Microsoft news
represented the climax of Nook's success. Since fiscal 2012, Nook sales have
shrunk from $933 million in fiscal 2012 to $111 million in fiscal 2018. Microsoft ended its
relationship with B&N in 2014. That pretty much dashed the
bookstore chain's hopes of creating a digital platform to compete with Amazon's
Kindle.

B&N's
current annual sales are about half of what they were in fiscal 2012 when sales
reached $7.1
billion. The onslaught of Amazon has
already sent Borders to the history books and other bookstores have been in
retreat as well. It's clear B&N is
heading in the same direction.

Retail has always been a highly
competitive industry, but as this list demonstrates, e-commerce has taken that
competition to a whole new level. To find sustainable long term winners in
retail, investors should look for companies that offer its customers something
they can't get anywhere else, such as unbeatable prices, or retail stores like Lululemon
or Tiffany that have built exceptional brand power over many years.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool’s board of directors. LinkedIn is owned by Microsoft. John Ballard has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool owns shares of GameStop and has the following options: short October 2018 $15 calls on GameStop. The Motley Fool recommends Five Below, Lowe's, and Lululemon Athletica. The Motley Fool has a disclosure policy.